Azikel Petroleum Unveils Tremendous Prospects for Modular Refineries in Nigeria

With the launch of Azikel Petroleum Refinery, Nigeria’s first modular refinery, Emmanuel Addeh, examines the prospects and challenges of modular refineries in the country

It took the Nigerian government close to a decade to accept that the construction of modular refineries was a viable alternative to the conventional ones in the effort to resolve some of the current challenges in the oil sector. But with the granting of licenses for the building of modular refineries by the President Muhammadu Buhari government, especially in the Niger Delta, and the seriousness exhibited by President of Azikel Petroleum, Dr Azibapu Eruani, the phenomenon is likely to expand in the next few years.

Pressure

With a hugely inefficient midstream sector, Nigeria continues to import at least 80 per cent of its petroleum products, Premium Motor Spirits being the most consumed with a daily requirement of approximately 55 million litres, according to latest figures from the Nigerian National Petroleum Corporation. The daily consumption of diesel, Dual Purpose Kerosene, and other refined petroleum products has also spiked in recent years, with the attendant pressure on the country’s foreign exchange and shortages due to inbuilt inefficiencies.

While there exists a huge market in terms of the demand for the products, the supply side has not only been abysmally disastrous, it has also led to the loss of productive man-hours, as Nigerians continue to recurrently spend long hours on fuel queues and pay exorbitantly to get the products in many states.

Modular Refineries to the Rescue

To solve the problem of scarcity of petroleum products and contain the rising resort to illegal refining, with its numerous dangers to humans and the environment, suggestions were made for the establishment of modular refineries, especially in the oil-rich Niger Delta.

A modular refinery is a processing plant constructed completely on skid mounted structures, each structure containing a portion of the plant, whose components are linked together through interstitial piping to form an easily manageable process.

As far back as 2009, the then Executive Chairman of Delta State Oil Producing Areas Development Commission (DESOPADEC), Chief Wellington Okirika, a leading voice in the struggle to ensure that modular refineries are given a chance to thrive in the Niger Delta, had led a powerful delegation to inspect the workings of the Tema modular refinery in Ghana. In 2012, the Gbaramatu Chief called on the federal government to establish at least 12 modular refineries in the core Niger Delta states of Delta, Bayelsa, Rivers, and Akwa-Ibom to fast-track deregulation of the downstream sector of the petroleum industry. At various forums, Okirika and other proponents of modular refining as an alternative to the traditional ones, argued that production from these modular refineries and the three existing national refineries in the country was capable of meeting Nigeria’s domestic consumption and export needs.

Their argument then was that modular refineries, which could be small or medium sized, and manufactured in modules in factories in United States and Europe, could, aside other advantages, be built within 16 months with complete funding, while large-scale traditional refineries would need about eight years.

The federal government seemed to have listened subsequently. As of the first quarter of last year, 22 modular refineries had been licensed by the Department of Petroleum Resources with the refining capacity of 1.429 million barrels per day. There were also approvals for 35 conventional refineries of between 30,000 and 650,000 barrels per day capacity.

Of the 22 modular refinery licensees, Eruani, a medical doctor by training, seems to be the only one who has decided to take up the gauntlet, with the inauguration, February 17, of his modular refinery, which he said was already 65 per cent completed.

Basically, a modular refinery is contained within a frame that allows the process system to be easily transported and is considered an alternative to traditional stick-built construction where process system parts are shipped individually and installed incrementally at the manufacturing site. While a large, typical refinery may cost billions of naira to build and a little less to maintain, occupy a large expanse of land, and would usually run non-stop for 365 days of the year, a modular refinery, as parts or equipment, are constructed in modules designed to be transported quickly and easily anywhere in the world with capacities ranging from 500 to 20,000 barrels per day.

According to industry experts, modular refineries are typically suited for remote locations, where rapid production of fuels are needed and to allow for greater process flexibility. They also require minimal land space, low installation cost, quicker investment recovery, and can restart from a cold start and have the plant in full operation in a matter of hours, as opposed to the huge conventional refineries currently run by the federal government in Warri, Port Harcourt, and Kaduna.

Professional Perspective

However, in a paper he delivered at the Nigerian Academy of Engineering, recently, former Group Executive Director, Refineries and Petrochemicals at the NNPC, Tony Ogbuigwe, argued that despite the new drive for modular refineries, “African refineries will inevitably face competition from the mega refineries in Asia, the Middle East, and USA, which currently also target Africa.”

Ogbuigwe maintained that a liberalised market, which is currently absent in Nigeria, remained a sine qua non for the survival of modular refineries business in the country. But he regretted that the current situation, where prices of oil were regulated by governments, led to inefficiency in asset capacity utilisation and product pricing.

“Price recovery is also not assured for the private investor,” Ogbuigwe, who is also a former managing director of the Port Harcourt Refinery, insisted, saying, “It is therefore necessary that governments fully deregulate pricing of all petroleum products” without which going into refining for local consumption will be a risky undertaking.

According to him, economy of scale for modular refineries would also be a major challenge, as the chances of making money are significantly higher for large capacity plants, which are able to spread the cost of the infrastructure required to receive crude oil, refine it, and dispose of the products.

“Over the years, most closure of refineries, especially in Europe, was of small and medium sized refineries, as they were unable to compete, price wise,” he said.

Ogbuigwe believes small or modular refineries will struggle to be profitable assets to their owners, and “they will simply not be able to compete with the larger scale refineries.”

Realistically, he argues, “The threshold for profitability is above 100,000BPSD,” a number that many modular refineries may not be able to hit.

Additionally, according to Ogbuigwe, pipeline vandalism, which has in recent times disrupted crude supply to Nigeria’s refineries, will also pose a challenge to modular refineries, unless they are located next to their crude supply sources.

But another industry expert, Ikenna Ifedobi, who had worked with Exxon Mobil and is a consultant to the American Petroleum Institute, foresees a more positive future for modular refineries. Ifedobi said modular refineries or prefabricated processing plants may be better suited for the Nigerian environment.

He said, “Its key advantage lies in its size, cost differential and flexibility. It is constructed in a controlled environment and properly tested before being shipped out. It is relatively easier to fabricate and erect. Also, when an area becomes unsuitable for business, it can be disassembled and reassembled in a more suitable environment.”

Ifedobi, like Ogbuigwe, says the maintenance cost for modular refineries is low; considering that it processes 2,000 to 15,000 BPD of mainly light sweet crude, requiring only routine turnaround maintenance and on-stream inspections.

Because of the reduced surface area and perimeter, issues of internal monitoring of equipment and external acts of sabotage can be better controlled, he noted.

“The impact on the environment is nothing compared to a large scale refinery. Environmental pollution and regulation can best be controlled with small scale plants in countries that may not have the industrial ethics to manage the huge amount of pollution prevalent with large scale refining,” Ifedobi adds.

On his part, erstwhile Coordinator of Presidential Amnesty Programme, Brig-Gen. Paul Boroh, speaking with journalists on Tuesday, just before his removal, said the establishment and operation of modular refineries in the Niger Delta will end youth restiveness in the region. Boroh said such refineries, when established, would engage many youths in the region. He expressed joy that a shipment of one set of the modular refineries had already arrived the country.

“Modular refineries will provide jobs for the youths of the region and every Nigerian will enjoy the products at reasonable prices,” Boroh said.

He added that the establishment of the refineries would end illegal oil activities, as youths of the region would be engaged in meaningful ventures.

According to him, “The illegal refining activities taking place within the creeks and environment will be discouraged. The activities have led to pipeline vandalism, river and land pollution, environmental degradation, oil theft and loss of revenue to the federal government.

“The elimination of illegal oil bunkering and related acts of economic sabotage in the region remains one of the major tasks for the federal government.”

Nonetheless, the former presidential aide said the establishment of the refineries posed some challenges, which were not insurmountable.

Viability

Speaking at the inaugural Nigeria International Petroleum Summit in February in Abuja, Professor Ogbarode Ogbon of the Federal University of Petroleum Resources, Effurun, said Nigeria would need about 75 modular refineries in addition to the big refineries of the NNPC and that of Dangote, coming on stream soon, to meet its growing demand for refined petroleum products. Ogbon said this in his presentation titled: “An Assessment of the Economic Viability and Competitiveness of Modular Refinery in Nigeria,” which was made at a session on “Petroleum Product Supply and Demand in Africa –Translating Crude Abundance to Product Abundance.”

He said, “Come 2020, you will need modular refineries operating in this country to the tune of 75 modular refineries of about 10,000 barrels per stream day. You have that working or we will go back to the situation of the fuel shortage, irrespective of the revamping of the refineries, irrespective of Dangote coming on board.

“To be able to do that, let us go through the statistics that we used. You look at the local PMS production and importation and consumption. On daily basis, we consume almost 51.53 million litres, according to the NBS and on yearly basis we have local production of about 1.5 billion on the average. The number for 2017 is 1.7 billion litres. The average yearly PMS importation to this country stands at 17.8 billion litres.

“If we are going to assume that by the year 2020 all the four refineries will come on board operating at full capacity and Dangote will come on board operating at full capacity, we have deduced that we will be able to have 18.48 billion litres in a year by the year 2020 that is fantastic because what we have this year is 18 billion litres.”

Ogbon further explained, “We have arrived at the fact that Nigeria will be needing 700 million litres per year increase on yearly basis and if you add that to the three years, that is going to be about 2.1 billion litres by the year 2020, which is going to give us 21 billion.”

 Azikel

But challenges or no challenges, Eruani, who is the president of Azikel Group, comprising Azikel Petroleum, Azikel Power, Azikel Air, and Azikel Sand, said he was pushing forward with his plant, which he said will come on stream later this year or the first quarter of next year.

Eruani said, “Our own idea is to reverse that story where Nigeria should be a country that is self-sufficient in refined products. The Azikel Petroleum provides self-sufficiency of refined products back in Nigeria, particularly in our area of operation, which is in the Niger Delta and Bayelsa State. Then, we begin to now think of exporting refined products because that is the way it should be.”

He is upbeat that with the pioneering efforts of Azikel in the modular refinery business, many more will be encouraged to come in so as to rescue Nigeria from perennial importation of refined products.

According to him, “The question is, why has the rest of the world succeeded and Nigerians failed? If the rest of the world succeeded, I do not see any reason why we should fail.

“The refined products we use in Nigeria today come all the way from India, Brazil, and Europe. We sell our crude oil to Brazil, India and China; they refine it and sell it back to us. There is no reason why we should fail.”

Confident that he would succeed where others failed to tread, Eruani insists that the refinery will be run in line with best international best practice, saying he and his team have already done their homework.

“And the scenario here is this, we are selling the refined products to Nigerians,” he says. “The market is available here. We are buying the crude oil from the same Nigerian market. There is not going to be freight charge on the crude oil, so the economy of freight is already going to come to us. Why it would not fail is because we haven’t failed in all other business operations.”